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Estate Planning Stalls With Death Tax In Morgue

The 111th Congress failed to agree on legislation to extend the federal estate tax for deaths in 2010. No death tax is good news, especially for heirs whose relatives pass on their farm this year, right?

“If the farm is going to stay in the family and not be sold, then the heirs will be just as well off as last year, or more well off, no problem,” says Roger McEowen, Iowa State University professor of agricultural law and director of the Center for Agricultural Law and Taxation. “However, if the heirs need to sell the farm, then they may have to pay capital gains tax due to a change in the way income tax basis is calculated for deaths in 2010.”

The bottom line is that farm owners need to take their wills and/or trusts back to their tax experts to see if the language in the documents still work in the way they were meant to work when the death tax was still in effect, he adds.

“Congress is still struggling right now on what to do with estate taxes,” says McEowen. “It looks like we’ll probably have the 2009 estate tax law reinstated and possibly made permanent. Until, we know for sure, this really throws estate planning into the wind.”

If reinstated, the 2009 estate tax law would tax estates 45% on taxable amounts above a $3.5 million exemption/person. The 45% tax rate is a major sticking point with some U.S. senators, who refuse to accept any rate higher than 35%, notes McEowen.

Taxpayers may ultimately decide the issue as November elections approach. “As the weeks go by and Congress does nothing, the estate tax issue could very well become an important election-year issue,” McEowen says.

While congressional inaction on the death tax is probably very poor public policy, I’m personally glad we’re not currently looking at a 45% estate tax for farm estates. How can our society expect security in our food supply system if the tax burden is too much for farm heirs to successfully take over their own family farm?

What’s your opinion – is a 45% estate tax too much? Or, is it fine for the rest of society, but just not for farmers?

Whatever your opinion, I welcome your input. When writing, please let me know your name, where you farm or work, what your comment is and whether or not I have permission to use your comment in a future Soybean E-Digest newsletter. You can contact me (John Pocock) at: john.pocock@penton.com.